How to Get The Best Cargo Insurance (4 Myths Busted)
11-minute read (20-minute watch)
As an NZ importer or exporter, you’re no doubt always on the lookout for ways to save money. But there’s one place you shouldn’t be skimping on, and that’s cargo insurance.
This is an educational business webinar to help NZ entrepreneurs understand how to get the best out of the cargo insurance and what to avoid.
YOU WILL LEARN:
- Situations When You May Be Getting the Wrong Type of Insurance
- 4 Common Myths About Cargo/Freight Insurance
- Simple Steps to Check That You Have Everything Done Correctly
- Q + A: Type Your Questions Now (or During the Live Talk) to Feel Confident With Importing/Exporting Your Goods
- Maxim Sherstobitov, the freight manager & co-founder of EasyFreight.co.nz
- Maxim has successfully organised over 10,000 import/export shipments through all New Zealand sea & airports. From clothing and building materials to vehicles and foodstuffs, you name it; his team has done it.
Max: Today, you will learn how to get the best cargo insurance, 4 myths about freight and cargo insurance you have to ignore, and simple steps to check that you have done everything correctly.
First, let’s discuss situations when you may be getting the wrong type of insurance. You might think that one insurance will cover everything.
However, brokers and insurance companies have a range of products for different situations. For instance, if your cargo is fragile, then you should declare it as fragile.
You also have to make everyone aware that you have a fragile type of goods. You may have to pay a premium for it because there is more risk.
If you try to save money and use insurance for non-fragile cargo, you may be getting your claim declined. Most importers and exporters know that insurance is a business; like everyone else, insurance companies are trying to make a profit.
They will not be legally obliged to pay you out if they see the wrong type of cargo and insurance.
You have to double-check. Ask your insurance broker, or customs broker, or freight forwarder if it is the correct type of cover for your particular goods.
Another thing to keep in mind is that even though a freight forwarder or a customs broker has a wealth of experience with insurance and different products, the best person to know if goods are fragile or not is the manufacturer, the supplier, or the buyer.
It is the buyer’s responsibility to declare the right type of goods. An insurance company, a broker, or a freight forwarder will gladly take your money while using your words, your declaration.
If there is an unfortunate situation, say, some of your goods have been damaged, and it’s a big claim – $10,000, or $20,000, or even $5,000 – the insurance company may want to do an inspection.
They will check if everything was appropriately declared on the documents. If it doesn’t match, then you may lose the entire payout. Once again, it is your responsibility to make sure you use the correct type of insurance cover.
Q: “When do you think is the right time to arrange the insurance for import cargo?”
Max: The sooner, the better. Most insurance companies require you to arrange the insurance before the imported goods leave the supplier.
Don’t forget to read the contract between you and your supplier. It will explain who is responsible for the goods at each point of their journey.
Based on shipping terms, as soon as the goods leave the supplier’s factory, they become your responsibility, which means you have to have the insurance in place.
We suggest doing the insurance at least one day before the dispatch since it takes not less than one or two days to arrange and discuss everything.
This way, you will be aware of the budget, you will know how much everything is going to cost, and you will also have time to check the insurance policy.
Don’t forget that, even though an insurance broker, or a freight forwarder, or a customs broker will arrange the insurance for you, it is your responsibility to check the insurance policy.
You have to read it if you want to be right. In many cases, you have to double-check that the description of the goods and the insured amount are correct.
Sometimes people declare the wrong currency – NZD instead of pounds or euros. In the case of an accident, you will get a lesser payout.
You are responsible for checking all the documents in advance, preferably before your cargo leaves the factory.
Q: “Do I have to buy insurance if using a courier company to deliver my goods?”
Max: It is a common misconception that you don’t have to buy insurance if you use a transport company, whether it’s a local or an international company.
Even though you get insurance, it has a limited cover, which depends on the contract and the transport company. For the argument sake, you should keep in mind that the limit for sea freight is around 500 USD per package.
Whether it’s a pallet or a carton, or a box, or a crate – whatever you declared on the transport document is going to be your limit.
If you’ve got two items declared on the transport documents, then transporter limits up to $1,000, even though your value of the goods is $10,000, their limit is $1,000.
It depends on the company that you use – different companies have different limitations. For air freight, it’s around 20 USD per kilo. If it’s 100 kilos, then the limit is $2,000, if my math is correct. In this case, insurance will help you.
Because you can increase the value of the insured amount, it has to be a market value. Say, if the actual cost of the goods is $10,000, the limit of the courier company is $2,000, you will get the payout of $10,000, you will have a full cover.
However, you can’t, and you shouldn’t declare more than the market value of the goods. Because if you insure it for $20,000, some insurance companies may decline and pay you only the real value of the goods. Then you’re just spending too much.
Max: Let’s discuss another situation when you may be getting the wrong type of insurance.
For example, some of our clients imported vehicles – it doesn’t matter if it’s a motorbike or a car, anything that has an engine, most likely, will be classified as a vehicle.
They declared the vehicle as general cargo or as fragile goods, therefore buying the wrong type of insurance, whereas the correct one is “vehicle”.
The insurance premium for vehicles is different, as well as the set of required documents. In this case, if you make an insurance claim, you may not get the payout.
Thus, you have to consult with an insurance broker. You can send all your paperwork and double-check if everything is insured correctly.
Q: “Can you please outline the documents and details required to issue the insurance certificate?”
Max: The most common is commercial insurance, where the value of the goods is displayed. Another thing that you have to provide to your insurance broker or freight forwarder is the shipping costs.
The value of the goods may amount to $10,000. Add the shipping costs to that figure – say, $1,000. On top of that, the best industry practice is to add another 10% to get the full cover and a payout.
In total, based on these figures, the insurance amount will be around $12,000.
If something happens, and you lose all the goods, surely, you want to get them again. You want to receive the full cover, door-to-door, including the shipping payment, so you won’t have to pay for the shipment again.
Therefore, you have to add all costs from start to finish, including the value of the goods, to get the full benefits. In certain situations, you can save money by getting excess.
Say, you pay first $500 to the insurance, and then you get the difference back in your pocket. In this case, the insurance companies don’t pay for small claims, up to $500, but they will help you with the bigger ones.
It’s going to depend on your risk appetite or whether you want to save money.
Q: “How long does it take for the insurance company to pay out a claim? Are there any standard time limits? Or will it depend on the terms of each particular contract?”
Max: If it’s a simple, straightforward claim, you’ve got all your documents done correctly, you don’t have any issues with the insurance company, your goods were appropriately packaged, and the insurance company doesn’t have any questions on top of just a standard set of documents, then, typically, you will get a payout within a week.
It may take longer if you have to do an investigation or inspect one of your boats, vehicles. Obviously, if it’s a significant loss, like a ship fire, it’s going to take longer.
However, if you lost the whole pallet as a result of an accident, then the insurance company usually will pay you out within a week.
It applies to insurance companies based in NZ. If it’s an overseas company, you’d be lucky to get any money at all. Sometimes it could take a lot longer without local support.
Q: “Am I insured for low-value goods automatically, as you’ve just explained with the courier doing door-to-door? What if there are a few companies involved in freighting, none of them admits damage done to my goods? How can I make them pay to their limits? Or is a separately arranged insurance my only option in this case?”
Max: Obviously, you want to have insurance. In this situation, when you have many people and a lot of companies involved, this is the last thing that you want to deal with.
You don’t want to chase different companies and fight with them, what’s the correct limit, and who is liable for what. If you have insurance, you will get a faster settlement, and you will have better support.
If you don’t have insurance for some reason, then you have to read all the contracts of different transport companies and check their limitations. It doesn’t matter if you read the contract before or not – you agreed on it.
Therefore, you’re going to have a lot of complex situations. Most companies are trying to do their best for you. Still, they will not admit their liability automatically.
They will try to reduce their costs as well. You have to go through the documents, to see who signed for what, and to check if you have any proof.
For instance, did you take any photos when your cargo was packaged at your supplier’s factory overseas? Do you have another set of photos when the container was unloaded in NZ?
Can you prove the conditions before and after? You have to be careful with these details.
Max: Let’s move to the next topic, 4 common myths about cargo insurance. NZ companies often rely on the overseas supplier to arrange the insurance.
In many situations, the supplier includes “free insurance” in the price of the goods. Or it costs $10, $20, or $50. It may be the case.
For instance, if you’ve had a long relationship with this company, it is an established overseas business, you’ve done your due diligence, you’ve read their feedback testimonials – yes, in this case, you can get insurance for free or at a small price.
Overseas, they buy in volumes; they’ve got very cheap money nowadays. If you follow the news, they print money like there is no tomorrow.
Their interest rate could sometimes be 1% or 0% – it’s not like 4% in NZ. Money overseas is very cheap.
However, if you deal with a supplier for the first time, how do you know that their insurance is going to meet your requirements? Once again, you have to check and read the terms and conditions.
One of the best tips that I advise to all NZ companies is to check whether this insurance company has a local agent, an office in NZ. If they do, that’s good, that’s a bonus.
The next step for you would be to take a copy of the insurance certificate, contact the local insurance company, and ask them whether this insurance is legitimate.
If the answer is “yes”, and you’ve got it in writing, then, by all means, everything should be fine, and you shouldn’t worry about it.
Once again, it’s your choice, and it’s going to depend on your risk appetite, and whether you want to deal with an overseas company or a local insurance company.
Another common myth is that it is expensive. For instance, if the value of your goods is $30,000, then allow at least $300 as a premium. Yes, you can get it cheaper in NZ, even for $200 or less.
As I said, it depends on your situation. For the argument sake, you should allow at least 1% of the insured amount. Is it expensive?
I don’t think so. When you run a business and import something worth $30,000, then $300 doesn’t sound that much to me.
For the peace of mind, insurance should be treated not as something extra but as a standard cost of doing business. It’s like electricity. Yes, nobody likes to pay for anything.
Still, if you want to run your business, I think you should have proper insurance in place. Another common myth is that you can do it later, while the cargo is in transit.
Yes, in some cases, it is possible. It was easier to do last year. This year, however, we see that many insurance companies start asking a lot more questions; they have become cautious with insurance certificates.
Nowadays, you have to get insurance a lot sooner, before your goods leave the factory. This way, you’ll be sure that you are covered from start to finish.
Let’s move to another topic, simple steps to check that you’ve done everything right. The best way to do it is not to rely on emails.
The insurance company may tell you that everything has been arranged. Still, unless you see the actual document, the insurance certificate, it’s unlikely to be done and activated.
The easy way is to get a copy of the insurance certificate and compare it with your instructions. Is the description of the goods the same as what you requested? Is the currency the same?
If everything matches with your instructions, then you’ve done everything correctly.
Q: “Is there an insurance cover if my cargo gets delayed?”
Max: The answer is yes. There are all sorts of insurances available to you. It may not relate to cargo insurance, freight insurance, but there is business interruption insurance.
For example, if you miss a special occasion or expo, you will be able to get a separate insurance cover for that and have a peace of mind. Talk to your insurance broker, and they’ll be able to review your situation.
P.S. Easy Freight Ltd helps New Zealand importers & exporters to save money on international freight and reduce mistakes by guiding how to comply with Customs and biosecurity rules.
➔ Contact us now to learn how we can assist you.